This invention relates in general to approval of financial transactions and in particular to a system for verifying checks which are being presented or cashed at locations other than the drawee bank.
Checks are widely used as a form of payment in many consumer transactions with various retail suppliers of goods and services, and the potential risks arising from acceptance of checks by merchants and others are well known. Certain types of businesses have historically done substantial volumes of business with customers who prefer to pay by check. In addition to accepting checks drawn for the amount of a purchase, moreover, many stores will accommodate their customers by cashing personal checks, payroll checks, or the like. Next to banks, for example, it has been estimated that food stores cash more checks for the American public than any other facility, but most businesses need to accept checks at least some of the time from some of their customers. Anyone who undertakes to cash checks for other persons must have some way of assuring himself that these checks will ultimately be collectible, or at least substantially minimizing the number of uncollectible checks.
Numerous techniques have been used to reduce the acceptance of checks which turn out to be "bad", i.e., uncollectible for whatever reason. The simplest and most obvious technique is, of course, to cash checks only for customers who are personally known to the person cashing the check, but this technique is impractical for application in all but a small number of locations where checks are accepted only from repeat customers whose established financial capability and honesty are known. The more typical commercial practice employs manual check cashing files, usually established and used only by each particular store in conjunction with bad-check lists prepared by banks or other agencies and periodically circulated to merchants.
Telephone verification of each check, in which the merchant telephones the drawee bank to determine whether the person drawing the check has sufficient funds currently on deposit to cover the amount of that check, is another technique which is sometimes used. Telephone verification, as well as the maintenance and manual look-up of check cashing files, bad-check lists, and the like require a substantial amount of time and effort on the part of store personnel, and often cause queueing problems at the check-out lanes or courtesy desk of any stores. Whatever the system, some checks will be accepted and subsequently dishonored, requiring further time and effort in the attempt to collect from the person who presented the check.
Prior techniques for verifying checks have generally relied on what is known as a "negative file" of information, that is, a file containing information only on those persons who have previously passed a bad check. While information on a negative file will direct attention to persons having a past history of dishonoring checks, a negative file obviously provides no information for making a positive decision to accept a check presented by a person who is not in the negative file.
Prior check verification systems which determine whether the person presenting the check has sufficient funds on deposit are necessarily limited to those persons having an established checking account with a particular bank. Such systems are effective only if constantly updated by all deposits and withdrawals to each customer's account. Moreover, such systems are simply unavailable for those persons who have no established checking account but who may nontheless have bona fide reasons to cash checks. Many recipients of government checks, such as welfare and social security checks, have no established checking account or other conventional credit status and may, as a consequence, encounter difficulty in cashing such checks.